Monday, January 21, 2013

Elevated energy prices pose a threat to US recovery

Gasoline prices could create headwinds for US economic recovery. The recent sharp rise in gasoline inventories (below) was thought to provide some relief to the consumer by bringing down fuel prices - at least in the near-term.

Source: EIA

But in spite of adequate supplies, prices remain elevated. This is driven by firm crude oil prices as well as demand for distillates from outside the US. Furthermore, the Fed's monetary policy is not helping matters.

March 2013 gasoline futures contract (source: Barchart.com)

In fact Econoday is attributing - at least in part - the unexpected weakness in Jan-2013 consumer sentiment to elevated energy prices.

Econoday: - Consumer sentiment is flat at soft levels. January's mid-month reading of 71.3 is down 1.6 points from the full month reading for December and compares with a low 70s trend during the latter part of December. Expectations continue to slip, down 1.1 points to 62.7 which is the lowest reading for this component since the aftermath of the debt-ceiling battle in 2011. Current conditions, which had been holding up better than expectations, are showing noticeable weakness, falling 3.7 points in December and another 2.2 points so far this month to 84.8. Today's decline in current conditions is not a positive signal for January's slate of economic data.

Oil prices are climbing and the consumer isn't ignoring it. One-year inflation expectations are up two tenths to 3.4 percent.